1. Start with your credit. Credit reports are kept by the three major credit agencies, Experian, Equifax, and TransUnion. They show whether you are habitually late with payments and whether you have run into serious credit problems in the past.
A credit score is a number calculated from a formula created by Fair Isaac based on the information in your credit report. It's not unusual to have a different score at each agency.
A low credit score may hurt your chances of getting the best interest rate or getting financing at all. So get a copy of your reports and know your credit scores. You can get a free copy of your credit report from each agency every 12 months.
Errors are common in the reports. If you find any, contact the agencies directly to correct them, which can take two or three months to resolve. If the report is accurate but shows past problems, be prepared to explain them to a loan officer.
2. Set your budget. Next, you need to determine how much house you can afford. You can start with an online mortgage calculator but for a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt, and credit to determine a loan you can afford.
3. Line up cash. You'll need to come up with cash for your down payment and closing costs. Lenders like to see 20% of the home's price as a down payment. If you can put down more than that, the lender may be willing to approve a larger loan. If you have less, you'll need to find loans that can accommodate you.
Various private and public agencies -- including Fannie Mae, the Federal Housing and the Department of Veterans provide low down payment mortgages through banks and mortgage companies. If you qualify, it's possible to pay as little as 3% up front.
A warning: With a down payment under 20%, you will probably wind up having to pay for private mortgage insurance (PMI), a safety net protecting the bank in case you fail to make payments. PMI adds about 0.5% of the total loan amount to your mortgage payments for the year.
Once you've considered the down payment, make sure you've got enough to cover fees and closing costs. These may include the appraisal fee, loan fees, attorney's fees, inspection fees, and the cost of a title search. They can easily add up to more than $10,000 -- and often run to 5% of the mortgage amount.
If your available cash doesn't cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $15,000 a year from each of your parents without triggering a gift tax.
You can also tap a 401(k) or similar retirement plan for a loan from yourself.
4. Find an agent: Most sellers list their through an agent -- but those agents work for the seller, not you. You need an "exclusive buyer agent." A buyer's representative has the same access to homes for sale that a seller's agent does, but his or her allegiance is supposed to be only to you. A qualified real estate agent can help you negotiate the tricky process of buying a home. Say you want a swimming pool. Or don't want a swimming pool. Or maybe you want a fenced-in yard for the dog or a basement playroom for the kids. If you're looking for something specific, I can help you, I have access to fit your needs, and I will walk you to the process from the beginning to the closing table.
5. Search for a home. Your first step here is to figure out what city or neighborhood you want to live in. Look for signs of economic vitality: a mixture of young families and older couples, low unemployment, and good incomes. Once you have narrow your wants and need and I will send a list of properties matching your search criteria.?Pay special attention to districts with good schools, even if you don't have school-age children. When it comes time to sell, you'll find that a strong school system is a major advantage in helping your home retain or gain value.
6. Make an offer. Once you find the house you want, we need to move quickly to make your bid. Will line up data on at least three houses that have sold recently in the neighborhood. If you really want the house, don't lowball. The seller may give up in disgust. Remember, that your leverage depends on the pace of the market. In a slow market, you've got muscle; in a hot market, you may have none at all.
7. Enter contract. Once you reach a mutually acceptable price, your home buying process is just getting started. Now there is a home inspection to complete, and perhaps you will conduct other types of inspections. With the home inspection, you will learn a lot about your house, including its overall condition, construction materials, wiring, and heating. If the inspector turns up major problems, like a roof that needs to be replaced, then we will discuss it with the seller. You will either want the seller to fix the problem before you move in, or deduct the cost of the repair from the final price. If the seller won't agree to either remedy you may decide to walk away from the deal, which you can do without penalty if you have that contingency written into the contract.
You also need to make a good-faith deposit -- usually 1% to of the purchase price -- that should be deposited into an escrow account. The seller will receive this money after the deal has closed. If the deal falls through, you will get the money back only if you or the home failed any of the contingency clauses.
8. Secure a loan. Now call your mortgage broker or lender and move quickly to agree on terms, if you have not already done so. This is when you decide whether to go with the fixed rate or adjustable rate mortgage and whether to pay points.
If you don't already have one, look into taking out a homeowner's insurance policy, too. Your lender will require that you have homeowner's insurance in place before they'll approve your loan.
9. Home Appraisal: Lenders will arrange for an appraiser to provide an independent estimate of the value of the house you are buying. The appraiser is a member of a third party company and is not directly associated with the lender. The appraisal will let all the parties involved know that you are paying a fair price for the home. All of these things could morph into some form of a renegotiation or adjustments to your transaction, including not buying the home at all at all by canceling the sale.
10. Close the deal. About two days before the actual closing, you will receive a final Closing disclosure or HUD Settlement Statement from your lender that lists all the charges you can expect to pay at closing.
Review it carefully. It will include things like the cost of title insurance that protects you and the lender from any claims someone may make regarding ownership of your property. The cost of title insurance varies greatly from state to state but usually comes in at less than 1% of the home's price.
The lender will require you to establish an escrow account, which it can tap if you fall behind on your mortgage or property tax payments. Lenders can require deposits of up to two months' worth of payments. NOTE: the closing time usually 45 to 60 days from acceptance of the offer.